Arena Pharma (ARNA) Down After Underwritten Public Offering

Arena Pharmaceuticals, Inc.’s ARNA shares dropped more than 13% on Apr 18, after the company announced that it will be raising funds through an underwritten public offering.

The company plans to offer 60 million shares of its common stock at a price of $1.15 per share. This amounts to aggregate gross proceeds of $69 million before deducting the underwriting discounts and commissions as well as offering expenses. The offering, which is subject to customary closing conditions, is expected to be closed on Apr 21, 2017.

Arena’s shares have significantly underperformed the Zacks classified Medical-Biomed/Genetics industry so far this year. Shares of the company lost 9.9%, while the industry registered an increase of 2.9%.

The underwriters have been granted a 30-day option to purchase up to 9 million additional common shares. Citigroup and Leerink Partners served as joint book-running managers for the public offering. Arena Pharma plans to utilize the net proceeds for general corporate purposes and capital expenditures. The remainder will likely be used to fund the clinical/pre-clinical pipeline.

Arena's remains focused on advancing its pipeline candidates. In Jun 2016, Arena announced a strategic shift in its priorities and said that it would be concentrating on its pipeline. Arena has a few early- to mid-stage candidates in its pipeline. Ralinepag, which is being developed for the treatment of pulmonary arterial hypertension (PAH), is currently in a phase II study, the data from which is expected in mid-2017. The candidate has orphan drug status for the indication. Other candidates include etrasimod (ulcerative colitis) and APD371 (Crohn's disease).

We note that the company has been facing a marginal increase in cash burn rate after it decided to shift focus to its clinical pipeline of early- to mid-stage candidates. At the end of Dec 2016, the company had roughly $90.7 million of cash and cash equivalents.

Heska’s earnings per share estimates increased from $1.53 to $1.65 for 2017 and from $1.90 to $2.01 for 2018 over the last 60 days. The company posted positive surprises in three of the four trailing quarters with an average beat of 291.54%.

Galena’s loss per share estimates narrowed from $1.12 to 58 cents for 2017 and over the last 30 days. The company posted positive earnings surprises in two of the four trailing quarters with an average beat of 53.83%.

Aeglea’s loss per share estimates narrowed from $3.64 to $2.48 for 2017 over the last 30 days. The company’s shares gained 73.3% so far this year.

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